British semiconductor company IQE (LSE:IQE) has had a pretty good 2020, all things considered. Founded in Wales, it’s a tech company that manufactures a range of applications for optoelectronic, electronic, wireless and solar devices. The IQE share price has recovered from the March market crash but is now experiencing some resistance to its rise.
Share price rebound
UK shares have been a mixed bag this year, with many companies suffering severely at the hands of Covid-19. While the IQE share price collapsed as much as 69% in March, it has since rebounded to be almost 20% higher than its January opening price.
Its market cap is £497m and earnings per share (EPS) are 0.13p but its price-to-earnings ratio (P/E) is an astronomical 480!
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The group expects to be delivering a mid-single-digit million pound adjusted operating profit for FY20. This will raise EPS and reduce the P/E, but it’s unlikely to come in at a sensible level. Therefore, I believe the positive sentiment surrounding IQE’s future is already well priced in to the share, and I don’t think IQE shares are a bargain at their current price.
Learning from past mistakes
IQE’s past earnings history doesn’t make for great reading, it’s been known to hype investors up with anticipation, only to leave them bitterly disappointed with the results. Nevertheless, it appears to have won some business in recent months, and its 2020 revenues have been better than expected. It also revised its full-year revenue expectations to be at least £170m.
IQE recently won a large contract for the military and defence sector worth over $10m. And it hopes to reduce its net debt for 2020. The IQE share price remains down 65% from its 2017 all-time high. This is a point of pain for long-term holders.
Looking to the future
The advent of 5G, autonomous vehicles and the Internet of Things are all areas that have been hyped to the max this year, fuelling investor speculation and a price rise in related stocks. I think it’s true that these areas will continue to rise in demand. 5G deployment is set to get going again once the pandemic is behind us. Also, 3D sensing products are increasingly required for use in consumer electronics, the automotive industry, and healthcare. These are all sectors that IQE operates in.
Dr Drew Nelson, IQE’s founder and chief, is stepping down to make way for a new visionary. A successor has not yet been found, but management is seeking someone who can lead IQE to capitalise effectively on the growth opportunities presenting themselves. This may bode well for the IQE share price and future shareholder returns.
If I owned IQE stock, I’d continue to hold, but I’m not tempted to buy at the current share price. I don’t consider it among the best UK shares to buy now and can think of quite a few cheaper stocks I’d prefer to own.
